RBI Plans License Regime For POS Players; Major Impact Expected

The Reserve Bank of India (RBI) is set to introduce a licencing framework for point-of-sale (POS) operators. This development is poised to impact major players such as Pine Labs, MSwipe, Paytm, and BharatPe.

The objective is to ensure operational harmony and level the playing field between online and offline payment operators.

While regulated entities like banks and NBFCs currently in the POS business won't be affected, third-party operators will need to obtain licences to continue operations, according to inside sources.

The rapid growth of third-party operators compared to regulated entities in the offline payments sector underscores the necessity of this licencing regime.

Third-party offline payment operators maintain daily average balances of Rs 400 crore, contrasting with Rs 1,000 crore in the online space.

This move aims to enact regulatory changes preemptively, preventing potential issues as the offline market expands.

In recent years, banks have favoured third-party POS players over in-house operations due to their ease of business. Similar to payment aggregator licences, POS operators may be subject to specific norms, including a minimum net worth requirement of Rs 25 crore and meeting the RBI's fit and proper conditions.

If licences become mandatory, it raises questions about the eligibility of players like BharatPe and Paytm, awaiting RBI approval for payment aggregator services, to operate in the offline POS segment, according to media sources.

The need for a licencing framework stems from three main concerns. Firstly, there is a notable increase in cash loans on credit cards within the informal sector, with a surge in high-value, one-time swipes at POS.

This phenomenon suggests potential cash transactions facilitated by merchants handling the POS. While third-party operators are responsible for KYC, the system lacks foolproof mechanisms to detect and address deficiencies.

Secondly, the data storage practices of POS transactions vary among operators, governed by agreements between issuing banks and third-party operators. Harmonising these practices is crucial for security reasons. Lastly, concerns arise regarding fund management by third-party players.

Settlement with merchants often involves a day's lag, posing risks associated with unregulated entities stocking cash. Despite no major lapses thus far, the exponential growth of the business in recent years has brought fund management to the forefront of regulatory concerns.

The proposed licencing regime for POS operators by the RBI aims to enhance regulatory oversight and address concerns regarding cash loans, data storage practices, and fund management in the offline payments ecosystem. This move underscores the importance of ensuring a secure and level playing field for all players in the financial services sector.